Coca Substitution and Free Trade in Bolivia: The Pending Crisis

Abstract

This paper uses the factors proportion model of production and trade with ten inputs to analyze the potential impact of the Free Trade Agreement of the Americas (FTAA) on the coca substitution program in Bolivia. With six crops including coca, the model produces comparative statics elasticities of changing prices on factor prices and output. Results show that the coca substitution program with free trade will result in large income redistribution in the coca-producing region as a result of increased competition from larger and more efficient economies. Increased subsidies and institutional changes will be needed to sustain the coca substitution program in the long run.